Omer Javed |
Pakistan Tehreek-i-Insaaf (PTI; translated Pakistan Movement for Justice) outlined its economic vision mainly through its Manifesto 2018, with details further highlighted in the recent interviews of the forthcoming Finance Minister, Mr. Asad Umar. Having said, the general direction of PTI’s economic policy over the years, as indicated by its leaders in their talks, and as propounded in their policy papers, has been quite consistent with the Manifesto 2018.
The Manifesto needs to be highlighted a bit in terms of its overarching understanding of issues, beliefs, and dreams. This is important because it is in this overall environment that the Manifesto wishes to achieve the underlying economic vision. First of all, Pakistan being the Islamic Republic, and a federation, it is but natural that the Manifesto highlights the centrality of all government actions to be targeted towards the betterment of people that dwell here across all provinces, and with the guiding principles of Islam, including the ones that deal with the welfare state.
As I go into deeper detail about the plans highlighted by PTI for meeting the challenges above, it is important to comment on the overall approach and framework of PTI’s economic vision.
Hence, the Manifesto talks about the uniform application of the rule of law and ensuring the existence of equality of opportunity for all, for which is required that all decisions of the government are based on the principle of meritocracy and those that make the state a welfare state. Naturally, for which, improvement of governance system is emphasized. Moreover, for decisions to be effective and timely, and for strengthening the roots of democracy, people are empowered by emphasizing in the Manifesto the importance of bringing into effect a well functioning local self-governance system; the main thrust of the Manifesto being bringing the people out of poverty.
Also, before economic well-being could flourish, establishing internal peace through curbing terrorism and extremism, and reaching sustainable friendly relations with neighbors and beyond, has been rightly emphasized. For bringing this overarching environment for change towards a ‘Naya (or new)’ Pakistan, as a truly well-functioning Islamic welfare state, the economic vision outlined broadly includes a) economic growth is inclusive that is it brings on board all the stakeholders in policy making, b) properly focusing on meeting the water access/scarcity challenge, and improving the status of agriculture, and c) improving the social sectors.
Hence, it will be right to say that the Manifesto targets important challenges and most of all, directs all policy towards human development. As I go into deeper detail about the plans highlighted by PTI for meeting the challenges above, it is important to comment on the overall approach and framework of PTI’s economic vision.
Reforming institutions has been a consistent message of PTI leaders’ talks, starting from the now Prime Minister Imran Khan, and across many of his Party stalwarts of the upcoming Federal Cabinet. Rightly so, there can be no concept of sustained and meaningful growth and macroeconomic stability without properly functioning institutions. While PTI highlights the importance of improving institutions as the one main step towards meeting challenges, it needs to be pointed out that the philosophical and from it, the technical thought process of PTI about what institutions are, need to be augmented. Hence, it is important to dive in straight into the Manifesto to approach the understanding and overall plan of PTI in this regard.
Institutions provide the governance and incentive structures under which organizations work; where incentives are both positive (examples being rewards, subsidies, etc.) and negative incentives (regulation, punishment, among others).
The most direct reference to institutions is at, ‘Transform key economic institutions’ (Chapter 4), while there is also policy initiative to ‘Reform FBR’ (or Federal Board of Revenue; Chapter 4). I will return to the specific discussion of policy with regard to these in subsequent articles, but my first concern here is that it is important to understand the concept of institutions themselves as highlighted in heterodox economic literature; which has been exceedingly referred to by policymakers in recent years, but especially by those (like Latin America) that have been a victim of Washington-consensus style Neo-liberal economic public policies.
The lackluster policy assumptions of Alan Greenspan-styled orthodox economic literature that performed well below-power in avoiding the financial crisis like the Global Financial Crisis of 2008, has led to greater interest in New Institutional and Behavioural Economics heterodox literature. The Manifesto talks about the uniform application of the rule of law and ensuring the existence of equality of opportunity for all.
Here, institutions are the ‘rules of the game’, while the underlying organizations are the ‘players of the game’. Institutions, therefore, provide the environment through legislation, for the organizations to work towards achieving its goals. Institutions provide the governance and incentive structures under which organizations work; where incentives are both positive (examples being rewards, subsidies, etc.) and negative incentives (regulation, punishment, among others).
In practical terms, it is the Ministries and Departments of federal and provincial governments, respectively where the later especially important after the 18th Amendment- through legislators in parliament enact these institutions or laws, providing in turn governance- and incentive structures, under which organizations work. As a corollary, ‘market reform’ is included in the environment that these institutions provide. Well functioning markets, that reduce ‘asymmetry of information’ (for example in the financial and real sector markets) and that allow ‘true (or correct) price signals’ (unlike the ones that are seen, for example, as a result of artificial bubbles in the real estate or financial markets).
Similarly, Steel Mill, Pakistan Railways, Pakistan International Airlines, among other SOEs, are all organizations, since they work within the overall framework of the enacted law of their particular ministry or institution, and cannot, for example, make a procedure that is in conflict with the enacted law.
Going back to the Manifesto, and from those two points that I refer to above from it, organizations are being seen as institutions. This needs correction in the light of above. Under the initiative ‘Reform key economic institutions’, are indicated by State-owned enterprises (SOEs), which in fact are organizations. According to Merriam-Webster English dictionary, an enterprise is ‘a unit of economic organization or activity; especially: a business organization’.
Therefore, an enterprise is a hierarchical structure (or organization) and within it are players or economic agents (or actors) that work in an overall environment, provided by the law, rules, and regulations of the institution. An enterprise or organization can make rules and procedures, but those cannot be in conflict with the laws that have been enacted through parliamentary legislation, with an institution being its embodiment, under which works one or many organizations; example being an education ministry/department, and under it are schools, colleges, universities, all working as organizations, each having their specific hierarchies, rules and procedures, but which are all working under the environment provided by an institution.
Similarly, Steel Mill, Pakistan Railways, Pakistan International Airlines, among other SOEs, are all organizations, since they work within the overall framework of the enacted law of their particular ministry or institution, and cannot, for example, make a procedure that is in conflict with the enacted law. For example, they cannot pay their workers below the minimum wage, or cannot decide about other organizations within an institution.
They themselves cannot make laws, which are the prerogative of the elected representatives. Hence, it is important for PTI to approach reforming institutions from perspectives that allow it the modernity and breadth, and at the same time specialization to deal with a much needed but huge task of reaching sustainably well-functioning institutions and under them, well-incentivized organizations.
One area could be, that in Pakistan, the approach is to give centrality of importance to the Finance Ministry in the economic sphere, and within it the budget-related actions, while it is the Planning part of economic policy that has continued to lack due attention
As part of the Cabinet, PTI government has brought in as Advisor, Dr. Ishrat Hussain on ‘Institutional Reform and Austerity’. In my opinion it would make sense for the Advisor to make a team that could approach institutional reform in pluralistic wholesome way, that is it is diverse in its knowledge of both orthodox- and heterodox approaches to institutional reform, that can purge policy from the negative aspects of neo-liberalism (like done by many countries in Latin America to their benefit), and that has the capacity to indigenize the needed institutional governance- and incentive structures of the Scandinavian or Social Democratic Welfare models- the two main philosophical cornerstones of PTI’s policy when it comes to reforming institutions.
In his very first speech after PTI emerged as the main party in General Elections 2018, Mr. Imran Khan re-emphasized that he would endeavor to make Pakistan a model Islamic Welfare State, and highlighted that while he would look to learn from China, he would also look to the Scandinavian model of welfare- the closest current reflection of that State.
Another important matter that the Manifesto and PTI’s upcoming Cabinet needs to look is to understand the importance of the Planning Commission. Since PTI comes into power on the slogan of change to Naya (or new) Pakistan, it, therefore, would make sense that it tries to approach policy in an innovative way, making previous public policy approach corrections where needed along the way.
One area could be, that in Pakistan, the approach is to give centrality of importance to the Finance Ministry in the economic sphere, and within it the budget-related actions, while it is the Planning part of economic policy that has continued to lack due attention, since it is the Planning Commission that ought to be the place where decisions on setting policy and resource allocation priorities need to be made primarily; and that the Finance Ministry is tasked to see to it that the financial allocations reach transparently and timely to the targeted recipients.
That is why, the upcoming Finance Minister, Mr. Asad Umar has righty emphasized both the importance of the independence of the State Bank and a healthy working relationship between the Ministry of Finance and the State Bank.
In Pakistan, the Planning Commission has played a second fiddle generally, while the epicenter of economic policy flows from the Ministry of Finance; with history of encroaching on the independence of State (or central) Bank and the Pakistan Bureau of Statistics (previously Federal Bureau of Statistics), where the previous responsible for basing monetary and exchange rate policy on purely economic fundamentals, while the former is to ensure provision of correct and timely economic data for policy formulation and analysis.
At the same time, with regard to State Bank independence, this is not to say that the government should not have control over policy tools that have bearing on fiscal stance. For example, the impact of policy rate on current- and fiscal accounts being there, there needs to be kept alive a mechanism for input from government to the State Bank on this and other areas of mutual interest.
That is why, the upcoming Finance Minister, Mr. Asad Umar has righty emphasized both the importance of the independence of the State Bank and a healthy working relationship between the Ministry of Finance and the State Bank. Hence, it is therefore important that PTI’s economic vision gives the rightful place to the Planning Commission, and ensure the independence of State Bank and Pakistan Bureau of Statistics, in areas for which they are respectively responsible.
(To be continued…)
Omer Javed holds Ph.D. in Economics from the University of Barcelona, Spain. A former economist at International Monetary Fund, his work focuses on institutional and political economy, macroeconomic stability and economic growth. This article was first published in Pakistan Today and has been republished with author’s permission. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.